PSA to cap operations at India port due to tariff cuts
PSA International is playing hardball with the Indian government over what the Singapore terminal operator says are unviable cuts to tariffs at its Tuticorin Container Terminal (TCT).
Major decision: From July 15, TCT, which can handle 450,000 TEUs per year with four quay cranes, will operate with only three cranes, a move which may cause a rift with Indian govt officials
PSA said yesterday it will rationalise its operations at TCT, which it has operated through its joint venture PSA Sical since 1998.
The terminal will put a cap on operations, fulfilling only the minimum annual throughput of 300,000 TEUs (20-foot containers) specified in its concession agreement.
This represents a cut in handling of almost 25 per cent from last year's throughput of 377,000 TEUs and is expected to result in delays at the terminal.
From July 15, TCT, which can handle 450,000 TEUs per year with four quay cranes, will operate with only three cranes. 'Some ships will likely experience a longer port stay as a consequence,' PSA Sical said.
PSA said: 'While PSA-Sical is committed to operating and developing TCT, the decision by India's Tariff Authority for Major Ports (Tamp) in September 2006 to halve the TCT's revenues has made the terminal commercially unviable.'
PSA said the reduced revenue per box caused by the tariff cuts is not enough to cover operating expenses and the royalty payment per box that it has to pay the Indian government under the terms of the concession.
It said that as a result, after much deliberation it decided it had 'no choice, but to right-size its operations to match its concession commitment'.
Although the volume drop is not substantial compared with PSA's operations elsewhere - in Singapore, PSA Corporation handles an average of almost 70,000 TEUs a day - the move could cause a rift in relations with Indian government officials, importers and exporters as well as shipping lines calling at Tuticorin, shipping sources say.
'PSA must be extremely frustrated with the situation to take this kind of step, because it will undoubtably hit some raw nerves in India and could well lead to a prolonged rift,' said one executive whose line serves the Indian sub-continent trade. 'This may not be the wisest move if PSA is hoping to be successful in future terminal bids.'
The situation has been simmering for some time, with PSA Sical taking an unprecedented step in early 2005 by asking the Indian government to change the basis on which it was awarded the concession. PSA-Sical, which has the right to run the Tuticorin box facility for 30 years, asked the government to allow it to switch from a royalty format to a revenue sharing arrangement.
Under the current format for port concessions, the bidder with the highest revenue share percentage wins the contest.
Tariffs for the services provided at terminals are fixed by Tamp. At present, they are calculated by adding 15 per cent to actual costs, but the royalty portion paid to the government is not included as a cost in this calculation.
PSA-Sical said it 'deeply regrets' possible delays to its customers and it 'hopes that the relevant authorities and PSA-Sical can find an expedient solution so that TCT can return to its normal operating conditions'.
An indication that the dispute is unlikely to be resolved quickly is evident from PSA Sical asking for patience and understanding from its customers and port users 'in the months ahead'.
PSA was recently awarded concessions for two new terminals in India, both due onstream by 2009. The first is on the north-western coast in Gujarat at the Hazira port and the second on the east coast at Chennai.
PSA has had limited success in India, failing to win bids for key terminals and after selling its share in the northern port of Pipivav which, until the recent concession wins, left it with only the Tuticorin terminal. Because it was a greenfield site, Tuticorin has been slow to see significant throughput growth.
Major decision: From July 15, TCT, which can handle 450,000 TEUs per year with four quay cranes, will operate with only three cranes, a move which may cause a rift with Indian govt officials
PSA said yesterday it will rationalise its operations at TCT, which it has operated through its joint venture PSA Sical since 1998.
The terminal will put a cap on operations, fulfilling only the minimum annual throughput of 300,000 TEUs (20-foot containers) specified in its concession agreement.
This represents a cut in handling of almost 25 per cent from last year's throughput of 377,000 TEUs and is expected to result in delays at the terminal.
From July 15, TCT, which can handle 450,000 TEUs per year with four quay cranes, will operate with only three cranes. 'Some ships will likely experience a longer port stay as a consequence,' PSA Sical said.
PSA said: 'While PSA-Sical is committed to operating and developing TCT, the decision by India's Tariff Authority for Major Ports (Tamp) in September 2006 to halve the TCT's revenues has made the terminal commercially unviable.'
PSA said the reduced revenue per box caused by the tariff cuts is not enough to cover operating expenses and the royalty payment per box that it has to pay the Indian government under the terms of the concession.
It said that as a result, after much deliberation it decided it had 'no choice, but to right-size its operations to match its concession commitment'.
Although the volume drop is not substantial compared with PSA's operations elsewhere - in Singapore, PSA Corporation handles an average of almost 70,000 TEUs a day - the move could cause a rift in relations with Indian government officials, importers and exporters as well as shipping lines calling at Tuticorin, shipping sources say.
'PSA must be extremely frustrated with the situation to take this kind of step, because it will undoubtably hit some raw nerves in India and could well lead to a prolonged rift,' said one executive whose line serves the Indian sub-continent trade. 'This may not be the wisest move if PSA is hoping to be successful in future terminal bids.'
The situation has been simmering for some time, with PSA Sical taking an unprecedented step in early 2005 by asking the Indian government to change the basis on which it was awarded the concession. PSA-Sical, which has the right to run the Tuticorin box facility for 30 years, asked the government to allow it to switch from a royalty format to a revenue sharing arrangement.
Under the current format for port concessions, the bidder with the highest revenue share percentage wins the contest.
Tariffs for the services provided at terminals are fixed by Tamp. At present, they are calculated by adding 15 per cent to actual costs, but the royalty portion paid to the government is not included as a cost in this calculation.
PSA-Sical said it 'deeply regrets' possible delays to its customers and it 'hopes that the relevant authorities and PSA-Sical can find an expedient solution so that TCT can return to its normal operating conditions'.
An indication that the dispute is unlikely to be resolved quickly is evident from PSA Sical asking for patience and understanding from its customers and port users 'in the months ahead'.
PSA was recently awarded concessions for two new terminals in India, both due onstream by 2009. The first is on the north-western coast in Gujarat at the Hazira port and the second on the east coast at Chennai.
PSA has had limited success in India, failing to win bids for key terminals and after selling its share in the northern port of Pipivav which, until the recent concession wins, left it with only the Tuticorin terminal. Because it was a greenfield site, Tuticorin has been slow to see significant throughput growth.